Economic Collapse Forces Iceland Rethink

With the bursting of the economic bubble in Iceland at the end of 2008, many people have been thrown out of work. Lines now form every week at a soup kitchen that hands out free food, and there is a growing acknowledgment that Icelanders need to get back to their core industries such as fishing and agriculture.

MADELEINE BRAND, host:

From NPR News, this is ALL THINGS CONSIDERED. I'm Madeleine Brand.

MELISSA BLOCK, host:

And I'm Melissa Block.

If you think the U.S. took a hit from the global recession, spare a thought for poor old Iceland. It has a population of only 320,000 people and it had become rich as the center of international banking. But Iceland's banks built up massive debts. It all came crashing down in October of 2008.

Now, as NPR's Rob Gifford reports from Reykjavik, people in Iceland are trying to rebuild their economy by getting back to basics.

ROB GIFFORD: Stigodo Frenssen shows visitors around his small factory producing dried fish for export on the western coast on Iceland. It's on a family small holding. The next door is the home of the owner of Iceland's biggest bank that collapsed 15 months ago.

Mr. FRENSSEN: I was struggling then. Then, he was flying helicopters over my head here. This was a very strange thing. Yesterday, he was buying land, farms, buying companies, flying around, having big parties.

GIFFORD: Frenssen and his compatriots struggled in traditional Icelandic industry overshadowed by the banking boom, the building boom and the transformation of the Icelandic economy. To him it was clear it would all end in tears.

Mr. FRENSSEN: I think they forgot what was the basic foundation of the country. They forgot the foundation of their living, which is the fish and the agriculture.

GIFFORD: And Frenssen is not the only one who says that because they forgot this, they pulled the whole country down with them.

Ms. OUSKEDO RIONESS FLOCEDOTIAR(ph) (Soup Kitchen Owner): And there is a (unintelligible) sky over Iceland. And I will say it will be like that for the next five, six, seven, eight years.

GIFFORD: Ouskedo Rioness Flocedotiar runs a soup kitchen in central Reykjavik and she sees everyday the human fallout of the bankers' greed.

Ms. FLOCEDOTIAR: Iceland there has been in the first five seats of the wealthiest country in the world. But now we are seeing thousands of people needing food just to be able to survive. People don't have food for their children.

GIFFORD: The long line outside proves what she is saying. Hundreds of people stand shivering, waiting for the food handout. Among them, 28-year-old Anna Helgadotta(ph) who returned to work last year after having children but did not work long enough to qualify for unemployment benefit before she was laid off.

Ms. ANNA HELGADOTTA: Because I don't (unintelligible) morning. I have a kids and I have to feed them. I have to come here. I don't want it.

GIFFORD: Do you see any signs of improvement in the economy?

Ms. HELGADOTTA: No.

GIFFORD: Do you have hope?

Ms. HELGADOTTA: No. Not anymore. It is just going to be harder and harder and harder.

GIFFORD: Asked what she thinks of the bankers who did this to the country, she lifts up her hand like a gun and pulls the trigger. But the issues facing Iceland these days are not just economic. In 2006, the United States closed down the airbase it had maintained here for nearly 60 years, a move symbolic of the changed world. Iceland was no longer seen as a crucial part of the West's defenses. Cilia Olmosdaughter(ph) is a professor at the University of Iceland.

Professor CILIA OLMOSDAUGHTER (University of Iceland): Icelandic security identity, Icelandic foreign policy have really shaped around and revolved around the American military presence. So, now, we have to figure out where we want to place ourselves in the world, what is our foreign policy going to be? And then the banking crash comes on top of this. And that takes away our economic identity.

(Soundbite of factory)

GIFFORD: Back at the processing factory the fish continue to slop down off the conveyor belt for sorting. Stigodo Frenssen's business is looking up. The depreciation of the Icelandic krona means he gets much more for his exported dried fish. He says his neighbor, the banker, hasn't been flying his helicopter overhead recently. The bankers don't dare show their faces in public now, he says. In fact, some of them have fled the country.

Mr. FRENSSEN: No they had the party, big party and now they have a hangover. They thought it would all come. We were all going to get rich out of, I don't know, nothing. Iceland is fish, has always been. They are now realizing that they have to go through the you know, they have to go to work and they have to cut fish, pile fish, work, work.

GIFFORD: That work ethic is coming back, he says. People are getting back to their roots and remembering what being Icelandic has always been about.

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Debt Repayment Plan Sparks Fiery Debate In Iceland

In a speech televised to the nation, Icelandic President Olafur Ragnar Grimsson announces Jan. 5 in Reykjavik that he will not sign a controversial bill to repay the British and Dutch governments, instead referring the issue to a referendum.
Halldor Kolbeins/AFP/Getty Images
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Halldor Kolbeins/AFP/Getty Images

In a speech televised to the nation, Icelandic President Olafur Ragnar Grimsson announces Jan. 5 in Reykjavik that he will not sign a controversial bill to repay the British and Dutch governments, instead referring the issue to a referendum.

Halldor Kolbeins/AFP/Getty Images

First, an economic whirlwind hit Iceland; now, it's in the midst of a political one. Last week, the country's president refused to sign a controversial bill to repay a $5 billion debt to Britain and the Netherlands, incurred when three Icelandic banks went belly up in October 2008.

The Icelandic banks and their online subsidiaries with their high interest rates had attracted many savers from Britain and the Netherlands. When the banks collapsed 15 months ago, the British and Dutch governments stepped in to refund their savers who lost money.

Britain and the Netherlands then negotiated a deal with the Icelandic government to be reimbursed for the money they paid out, and that bill was passed by the Icelandic parliament. Last week, though, President Olafur Ragnar Grimsson refused to sign the bill.

"The fundamental basis of the Icelandic political system is that the people, the nation, is the sovereign power," Grimsson said in a telephone interview. "It is the duty of the president under the constitution to make sure that the people of the country will have the final say on law."

What Grimsson means is that, under the Icelandic Constitution, what must now happen is a referendum on the bill. The reason Grimsson did not sign is that he had received a petition signed by a quarter of the population of Iceland, urging him to push for a renegotiation of the terms of the repayment.

Opposing Views

Opponents of the terms of the bill have set up a pressure group called In Defence. It's headed up by high school teacher Johannes Por Skulason, who says Iceland is not obliged to reimburse Britain and the Netherlands and, even if it does pay money back, it should be under better conditions.

"Iceland is doing what it can," he says. "We're saying we want to pay back, but ... we're being made to sign a deal that carries within it a risk of national bankruptcy, a risk of Iceland being pushed back to financial middle ages for years to come."

Certainly, the payback would hurt Iceland for many years, with an interest rate of 5.5 percent on the loan. And Iceland already has an external debt of between three and nine times its GDP. Despite opposition, others within society and within government say that passing the law is fundamental to Iceland's economic recovery, and that Iceland just needs to bite the bullet and move on, without the complication of a referendum.

"What do you think would have been the outcome in the United States if the taxpayers had got the chance to vote about the bill, the bailout? Just imagine," says Finance Minister Steingrimur Sigfusson. "It is not an easy task to get the voters to accept increased taxes and economical burden because of irresponsible behaviors of bankers."

'None Of Us Like This'

Sigfusson is hugely frustrated at the president's decision not to sign the bill.

"Obviously, the case is immensely unpopular in Iceland and quite understandably so. None of us like this, but that doesn't alter the fact that we need to deal with it, we need to solve it so that we are able to move forward and continue our economic restoration," Sigfusson says.

Some people on both sides are pushing for compromise to avoid the referendum altogether and the political turmoil — and further economic delay — that it could bring.

Whether a referendum happens or not, Sigfusson says, there is something deeper going on in Iceland — a moving away from what he calls the culture of neo-liberal greed and a returning home to its Nordic roots.

"I can be very frank about it: What we want to do is abolish this neo-liberal greed philosophy that was driving things in the bubble years," he says. "What we want to re-establish in Iceland is a strong Nordic welfare society with equal justice and equality."

Icelanders themselves are divided on whether the president did the right thing. But regardless of their stance on this particular bill, many share the finance minister's view that things simply got out of hand, and it's time to get back to more solid, dependable, Icelandic ways.